Deck 14: Creditors Rights and Bankruptcy

Question 1

A surety can use any defenses available to a debtor to avoid liability on the obligation to the creditor.

Answer 1

True

Question 2

A creditor's extension of time to a debtor for making payment, without the consent of the surety, will not discharge the surety.

Answer 2

False

Question 3

A surety is primarily liable on an obliga?tion.

Answer 3

True

Question 4

A contract of suretyship must be in writing to be enforceable.

Question 5

If an involuntary bankruptcy proceeding is initiated in bad faith, then a court may award damages for injuries caused to the debtor's reputation.

Question 6

A default occurs if a debtor fails to pay a creditor as promised.

Question 7

A debtor's car may be exempt from satisfaction of a judgment debt.

Question 8

A contractor who makes improvements to real property, but who is not paid for the work, may place a mechanic's lien on the property.

Question 9

To use attachment as a remedy, a creditor must have possession of (be "attached" to) a debtor's property.

Question 10

Almost all types of property can be garnished.

Question 11

A guarantor is released from his or her obligation if a debtor cannot pay it.

Question 12

Clothing is not included in state exemption statutes.

Question 13

If the proceeds of a foreclosure sale cover the costs and the mortgage debt, any surplus is a windfall to the creditor.

Question 14

A creditor with a mechanic's lien on property can sell the property to sat?isfy the debt.

Question 15

All of a debtor's pay can be gar?nished.

Question 16

A guaranty contract must be in writing to be enforceable.

Question 17

A surety is released from his or her obligation if the debtor pays it.

Question 18

A homestead exemption allows a debtor to pay a fixed debt for an amount less than was actually owed.

Question 19

Federal law disallows the use of state homestead exemptions.

Question 20

Any debtor who is liable on a claim held by a creditor may file for bankruptcy.

Question 21

The adequate protection doctrine protects secured creditors from losing their security as a result of the automatic stay.

Question 22

In a reorganization, a debtor pays a portion of the debts, is discharged of the rest, and is allowed to continue in business.

Question 23

In most states, state law determines the amount of a debtor's property that is exempt from dis?tribution on bankruptcy.

Question 24

On a debtor's bankruptcy, a secured creditor cannot recover more on a debt than the value of the collateral covering the debt.

Question 25

The procedure and content of a Chapter 12 plan are similar to the proce?dure and content of a Chapter 13 plan.

Question 26

The time for repayment under an individual's Chapter 11 plan is three or five years, depending on the debtor's family income.

Question 27

Donald's debt to Everett is past due. Everett brings a legal action against Donald to collect the debt. To ensure that a judgment in Everett's favor will be collectible, Everett asks the court to order the seizure of Donald's property. This is a request for

A) a guaranty (or suretyship) contract.
B) an order that would violate most state laws.
C) a writ of attachment.
D) a writ of execution.

Question 28

Loni delivers her Mazda to be repaired at Nile's Body Shop. Loni agrees to pay cash. Nile performs, but Loni does not pay. Nile tells Loni that he will keep the car until she pays. This is

A) a judicial lien.
B) a mechanic's lien.
C) an artisan's lien.
D) a violation of most states' laws.

Question 29

Larry borrows money from Joan. To use a writ of execu?tion as a remedy, Joan must first

A) be unable to collect the amount of a judgment against Larry.
B) be unable to redeem Larry's exempt property before a sale will occur.
C) notify Larry in writing (in a "writ") of her intent.
D) obtain and maintain possession of Larry's property.

Question 30

Almost any legal obligation of a debtor can constitute a creditor's claim.

Question 31

A trustee can set aside a sale of a debtor's property and take it back as part of the debtor's estate.

Question 32

In general, the claims of all of the creditors of an estate must be satisfied before any re?maining amounts can be given to the debtor.

Question 33

A Chapter 11 plan is binding on confirmation and the debtor is discharged.

Question 34

Pruit performs a contract with Quint to reshingle the roof on Quint's house, but Quint does not pay. Pruit notifies Quint that Pruit will foreclose on the house and sell it to satisfy the debt. This is

A) a judicial lien.
B) a mechanic's lien.
C) an artisan's lien.
D) a violation of most state laws.

Question 35

Debts based on fraud may be discharged under Chapter 13.

Question 36

Opie's debt to Pyle is past due. Pyle obtains a judgment against Opie to collect the debt, but Opie refuses to pay. Pyle asks the court to order the seizure and sale of Opie's property. This is a request for

A) a guaranty (or suretyship) contract.
B) an order that would violate most states' laws.
C) a writ of attachment.
D) a writ of execution.

Question 37

The principal duty of a trustee is to liquidate and close up the debtor's es?tate as quickly as possible.

Question 38

The Bankruptcy Code's Chapter 12 is intended to aid charitable institutions.

Question 39

The homestead exemption under the Bankruptcy Code is unlimited.

Question 40

A Chapter 13 plan can be initiated only by the filing of an involuntary petition.

Question 41

C-Plus Software Corporation needs money to meet its payroll. Drake, president and owner of C-Plus, asks East Main Bank to loan C-Plus the funds. East Main insists that Drake sign the loan applica?tion, making himself personally liable for payment whether or not C-Plus defaults. If Drake signs the application, he will be

A) a debtor in possession.
B) a preferred creditor.
C) a surety.
D) a trustee.

Question 42

Ross and Sally agree to guarantee Tim's debt. Ross's maximum liabil?ity is $30,000, and Sally's is $20,000. Tim owes $20,000 and is in default. Ross pays the creditor the entire amount. In the ab?sence of an agree?ment to the contrary, Ross can recover from Sally

A) $8,000.
B) $10,000.
C) $20,000.
D) nothing.

Question 43

Rhonda's debt to Skyler is past due. Skyler brings a legal action against A to collect the debt. To ensure that a judgment in Skyler's favor will be collectible, Skyler asks the court to order the seizure of Rhonda's property. Exempt from such an order in most states would be

A) all of Rhonda's real property.
B) as much of Rhonda's real property as Rhonda opts to exempt.
C) none of Rhonda's real property.
D) Rhonda's family home in its entirety or up to a specified amount.

Question 44

Elmo files a petition in bankruptcy. If the court concludes that there are grounds for a finding of "substantial abuse," the court will most likely

A) dismiss Elmo's petition.
B) discharge Elmo's debts.
C) distribute Elmo's property to Elmo's creditors.
D) issue an automatic stay against any actions by Elmo's creditors.

Question 45

Brick's debt to Conry is past due. Conry brings a legal action against Brick to collect the debt. To ensure that a judgment in Conry's favor will be collectible, Conry asks the court to order the seizure of Brick's property. Exempt from such an order in most states is

A) all of Brick's personal property.
B) as much of Brick's personal property as Brick opts to exempt.
C) equipment that Brick uses in a business up to a specified amount.
D) none of Brick's personal property.

Question 46

Flip's debt to George is past due. George brings a legal action against Flip to collect the debt. George asks the court to order Home Bank, in which Flip has an account, to pay a portion of the funds to George. This is a request for

A) an exemption from most states' limits on creditors' actions.
B) an order of garnishment.
C) an order that would violate most state laws.
D) a right of subrogation.

Question 47

Ezra's mortgage debt to Foxy is past due. Foxy brings a legal action against Ezra to collect the debt. Foxy asks the court to order the sale of the mortgaged property and the payment of the proceeds to Foxy. If the proceeds are insufficient to pay the debt, after the sale, Foxy may recover the difference from Ezra by obtaining

A) a deficiency judgment.
B) a foreclosure.
C) a right of reimbursement.
D) a right of subrogation.

Question 48

Rita is a surety for Stu's loan from Total Finance Company. Rita's right to "step into the shoes" of Total Finance, after paying Stu's debt, and ex?er?cise any of the Total Finance's rights against Stu is the right of

A) contribution.
B) redemption.
C) reimbursement.
D) subrogation.

Question 49

Valley Ranch cannot provide its creditors with adequate protection dur?ing the automatic stay. The bankruptcy court is most likely to

A) deny Valley Ranch a discharge.
B) place the affected assets in the hands of a neutral third party.
C) remove the stay and permit the affected assets to be repossessed.
D) sell the affected assets.

Question 50

Ollie files a petition in bankruptcy. At the moment of filing

A) an automatic stay goes into effect.
B) Ollie's debts are discharged.
C) Ollie's petition is dismissed.
D) Ollie's property is distributed to Ollie's creditors.

Question 51

Don files a petition for bankruptcy. Don's creditors must file with the court their proof of claims against Don's assets within

A) fifteen days of the creditors' meeting.
B) thirty days of the creditors' meeting.
C) sixty days of the creditors' meeting.
D) ninety days of the creditors' meeting.

Question 52

Ian's mortgage debt to Jeff is past due. Jeff brings a legal action against Ian to collect the debt. Jeff asks the court to order the sale of the mortgaged property and the payment of a portion of the proceeds to Jeff. This is a request for

A) a deficiency judgment.
B) a foreclosure.
C) a right of reimbursement.
D) a right of subrogation.

Question 53

Jay is a surety for Karen's loan from Little Bank. Jay's right to be repaid by Karen after having paid her debt is the right of

A) contribution.
B) redemption.
C) reimbursement.
D) subrogation.

Question 54

Khali's debt to Lew is past due. Lew obtains a judgment against Khali to collect the debt, but Khali refuses to pay. Lew asks the court to order My-T Quik Mart, Khali's employer, to pay a portion of Khali's paycheck to Lew. This is a request for

A) an exemption from most federal limits on creditors' actions.
B) an order of garnishment.
C) an order that would violate most state laws.
D) a right of contribution.

Question 55

Dana goes through an involuntary bankruptcy proceeding. An invol?un?tary bankruptcy occurs when

A) a debtor files forms designated for the purpose in a bankruptcy court.
B) a debtor is unable to pay his or her debts as they come due.
C) a debtor's creditors force the debtor into bankruptcy proceedings.
D) a debtor's debts exceed the fair market value of his or her assets.

Question 56

Tasty Pastries declares bankruptcy, idling Tasty's delivery vehicles. A credi?tor with a se?cured interest in the vehicles can compel Tasty to pay a cer?tain amount of money each month to offset the depreciation in the value of the vehicles. This is

A) the adequate protection doctrine.
B) the avoidance doctrine.
C) the creditor preference rule.
D) the Tasty Pastries rule.

Question 57

Kofi files a petition for bankruptcy. Kofi must include with the petition

A) a list of creditors and the amount of the debt owed to each only.
B) a list of creditors and the amount of the debt owed to each, a list of property, and a statement of financial affairs.
C) a list of property only. d a statement of financial affairs only.

Question 58

Mia's voluntary petition for bankruptcy is found to be proper. The order for relief is effective as soon as

A) Mia files the petition.
B) Mia posts a bond to cover the costs of the proceedings.
C) Mia's creditors agree to the terms.
D) the trustee collects and distributes the property of Mia's estate.

Question 59

Drew and Earl are brothers. They agree to act as guarantors on a loan made by their sister, Flo. Flo defaults on the payments and Drew re?fuses to pay. Earl pays the debt. Earl can recover from

A) Drew and Flo under the right of proportionate liability.
B) Drew and Flo under the right of reimbursement.
C) Drew under the right of contribution and Flo under the right of reimbursement.
D) no one, because the parties are brothers and sister.

Question 60

KO Delivery Company buys a truck from Lucky Vehicles, Inc., under a guaranty signed by Mina, KO's president, who writes "President" after her signature. When KO does not pay for the truck, Lucky sues Mina, who claims that she did not intend to be bound by the guaranty. The court would most likely rule in favor of

A) Lucky, because Mina's guaranty is unambiguous.
B) Lucky, because Mina works for KO.
C) Mina, because she did not intend to be bound by the guaranty.
D) Mina, because she signed only as a corporate officer.

Question 61

Veda believes that she needs to obtain a Chapter 13 discharge in bank?ruptcy. A Chapter 13 proceeding can be initiated by a filing of a pe?tition by

A) a creditor.
B) a debtor.
C) anyone.
D) a trustee.

Question 62

Eli agrees to pay a debt to Financial Credit, Inc., which is otherwise dis?chargeable in bankruptcy. This is

A) a justification.
B) a novation.
C) a reaffirmation.
D) a rejection.

Question 63

First State Bank is a secured party on a $5,000 loan to Geoff, who owns Happy Hours, a nightclub. When Geoff experiences financial difficulty, creditors other than First State Bank petition him into involuntary bankruptcy. The value of the secured collateral has substantially decreased in value. On its sale, the debt to First State Bank is reduced to $2,500. Geoff's estate consists of $100,000 in exempt assets and $2,000 in nonexempt assets. After the bankruptcy costs and back wages to Geoff's employees are paid, nothing is left for unsecured creditors. Geoff receives a discharge in bankruptcy. Later he decides to go back into business. By selling a few exempt assets and getting a small loan, he is able to buy the Idle Inn, a small, but profitable, restaurant. Geoff goes to First State Bank for the loan. The bank claims that the balance of its secured debt was not discharged in Geoff's bankruptcy. He signs an agreement to pay First State Bank the $2,500, and the bank makes a new unsecured loan to him. Is First State Bank correct that the balance of its secured debt was not discharged in bankruptcy What is the legal effect of Geoff's agreement to pay the bank $2,500 after the discharge in bankruptcy

Question 64

Fact Pattern 14-1
In January, Jazz Dance Studio owes Kay, its musical director, $1,800 for current wages, receives $700 as a down payment for dance lessons from Lora, and pays a Music, Inc., a sheet music supplier, $1,500 of $3,000 owed. In February, the studio files for bankruptcy under Chapter 7.

-Refer to Fact Pattern 14-1. Based on the size of the studio's estate in bankruptcy, each of Jazz's creditors will get only 10 percent of their claims. Regarding the payment to Music, Inc., the trustee may

A) not recover it because Music's claim has priority.
B) not recover it unless Music is an insider.
C) recover it as a fraudulent transfer.
D) recover it as a voidable preference.

Question 65

Smartt Software Company borrows $10,000 from Term 'N All Loans, Inc., but cannot repay the loan when it comes due. Term 'N All refuses to extend the time for repayment unless Smartt can provide an acceptable surety. Uno Venture Corporation agrees to act as a surety for the loan after Smartt offers the firm a discount on software and shows Uno financial statements, compiled with Term 'N All's assistance, that misrepresent Smartt's financial situation. Later, after Uno uses the discount to buy software, Smartt again defaults on repayment of the loan, and Term 'N All files a suit against Uno to collect the amount of the debt. Is Uno liable Why or why not

Question 66

Pola files a petition in bankruptcy. Pola's non-dischargeable debts include

A) domestic-support obligations.
B) student loans if payment would impose undue hardship.
C) unpaid loans to finance home repairs.
D) unsecured credit-card debt.

Question 67

Jill believes that she should file a plan for a Chapter 13 discharge in bankruptcy. A Chapter 13 bankruptcy plan must provide for

A) the completion of all payments to all creditors within six years.
B) the payment of 100 percent of all obligations in full.
C) the surrender of all collateral to the creditors.
D) the turnover of the debtor's future income to the trustee as necessary for the execution of the plan.

Question 68

Fact Pattern 14-1 (Questions 27-28 apply)
In January, Jazz Dance Studio owes Kay, its musical director, $1,800 for cur?rent wages, receives $700 as a down payment for dance lessons from Lora, and pays a Music, Inc., a sheet music supplier, $1,500 of $3,000 owed. In February, the studio files for bankruptcy under Chapter 7.
Refer to Fact Pattern 14-1. The highest priority belongs to

A) Kay and Music, Inc.
B) Kay only.
C) Lora only.
D) Music, Inc., only.

Question 69

To reorganize debt and continue in business, Sports & Fitness Corporation may file a petition in bankruptcy under the Bankruptcy Code's Chapter

A) 7.
B) 11.
C) 12.
D) 13.

Question 70

Kipper files a petition in bankruptcy. Kipper's dischargeable debts include

A) domestic-support obligations.
B) student loans unless the lender would suffer undue hardship.
C) unpaid state and federal taxes.
D) unsecured credit-card debt.

Question 71

Heidi is a trustee for a federal bankruptcy court. Heidi's duties include

A) collecting a debtor's property.
B) establishing priority for the payment of unsecured creditors.
C) operating a debtor's business to obtain maximum profit for creditors.
D) submitting to an examination under oath by the creditors.

Question 72

To adjust debt and institute a repayment plan, Oona, who operates Q.T. Café, a small business, as a sole proprietorship, may file a petition in bankruptcy under the Bankruptcy Code's Chapter

A) 7.
B) 11.
C) 12.
D) 13.